Executive summary This written analysis of case related to Continental Airlines, and how it has evolved over the years. First explain company vision and mission statement, company objectives as well. That written analysis of case about company strategic position as well as various matrixes that will help us identify, which strategies need to be adopted by Continental Airlines. On other side we can easily assess their pros and cons. Moreover, as mentioned already, matrices such as external evaluation matrix, internal evaluation matrix, competitive profile matrix, SWOT matrix, BCG matrix, IE matrix, SPACE matrix and the Grand Strategy matrix have all been identified. As a result analysis will formulate and recommend alternate strategies for Continental Airlines and assess in order to find out which will and will not be effective for the company.
Transcript
Executive summary
This written analysis of case related to Continental Airlines, and how it has evolved over the
years. First explain company vision and mission statement, company objectives as well. That
written analysis of case about company strategic position as well as various matrixes that will
help us identify, which strategies need to be adopted by Continental Airlines. On other side we
can easily assess their pros and cons. Moreover, as mentioned already, matrices such as external
A scan of internal and external environment is important part of the strategic planning process.
The company’s internal strengths and weakness are related to external opportunities and threats.
The analysis provides information that is helpful in matching the firms’ resources and
capabilities to the competitive environment which operates.
Strength Weakness
1. The fact that the airline provides
customized services in accordance to
the destination it’s travelling to.
2. The company rose to profitability after
being hit by severe losses for four years
straight.
3. It’s young management team that has
been supporting it since the mid 90’s.
4. Its various incentive programs to keep
its staff motivated to aim towards on-
time arrivals.
5. The fact that it serves more
international markets than any other
U.S. aircraft
6. Houston hub serves booming energy
market; Newark hub serves huge New
York market and is a major access
point to Europe
7. Its fleet comprises of mainly Boeing’s
and is one of the youngest globally.
This leads to increased efficiencies and
major cost reductions.
8. Received an array of awards for service
quality and overall reputation
9. Increment in gross profits and
reductions in overall costs
1. The fact that its “Go forward” plan
does not attend the environmental
issues directly.
2. The airline has faced a decrement in its
overall AQR scores.
3. Service quality has also faced a decline.
4. It has been recorded that continental
has poor on-time performance, despite
its efforts.
5. It also had the worst record in over
booking and bumping passengers in
comparison to other airlines.
6. Lack of internal training for the
employees
7. Little equity in planes, limiting ability
to raise cash through sale/lease-back
deals
8. Minimal presence in major foreign
destinations such as London, Paris,
Tokyo
Opportunities Threats
1. Continental airlines should consider
researching the international markets,
as they face intense competition from
the local market.
2. The installation of winglets in an
attempt to lessen costs.
3. The “EU-US Open Skies” provides
Continental with an opportunity to
broaden its base in terms of
connectivity.
4. Merger with the United Airlines in
October 2010
5. Growing demand for travel at 3.2%
growth in 2011
6. Being more technologically advanced
and using the internet to reduce their
costs.
7. 42% increase in the Hispanic
population in US over the last decade
1. Rise in fuel costs and domestic
competition.
2. Elevation in security costs due to the
risks of hijacking and terrorism.
3. The fact that its rivals have recovered
from bankruptcy and recovered back
much stronger due to their ability to
reduce their costs.
4. The introduction of new aircrafts by the
rivals and the fact that this would
directly contradict Continentals young
and more fuel efficient aircrafts.
5. Entry of international airlines into the
domestic services
6. Ongoing pricing competition of
budgeted airlines in the market
7. Airline industry as a whole is
vulnerable to economic cycles and big
swings in bottom-line performance
SWOT MatrixStren
1. The fact that the airline provides customized services in accordance
1. The fact that its “Go forward” plan does not attend the environmental
to the destination it’s travelling to.
2. The company rose to profitability after being hit by severe losses for four years straight.
3. It’s young management team that has been supporting it since the mid 90’s.
4. Its various incentive programs to keep its staff motivated to aim towards on-time arrivals.
5. The fact that it serves more international markets than any other U.S. aircraft
6. Houston hub serves booming energy market; Newark hub serves huge New York market and is a major access point to Europe
7. Its fleet comprises of mainly Boeing’s and is one of the youngest globally. This leads to increased efficiencies and major cost reductions.
8. Received an array of awards for service quality and overall reputation
9. Increment in gross profits and reductions in overall costs
issues directly.2. The airline has faced a
decrement in its overall AQR scores.
3. Service quality has also faced a decline.
4. It has been recorded that continental has poor on-time performance, despite its efforts.
5. It also had the worst record in over booking and bumping passengers in comparison to other airlines.
6. Lack of internal training for the employees
7. Little equity in planes, limiting ability to raise cash through sale/lease-back deals
8. Minimal presence in major foreign destinations such as London, Paris, Tokyo
Opportunities SO Strategy ST Strategy1. Continental airlines should
consider researching the international markets, as they face intense competition from the local market.
1) Its fleet comprises of mainly Boeing’s and is one of the youngest globally. This leads to increased efficiencies and major cost
1) Its fleet comprises of mainly Boeing’s and is one of the youngest globally. This leads to increased efficiencies and major cost
2. The installation of winglets in an attempt to lessen costs.
3. The “EU-US Open Skies” provides Continental with an opportunity to broaden its base in terms of connectivity.
4. Merger with the United Airlines in October 2010
5. Growing demand for travel at 3.2% growth in 2011
6. Being more technologically advanced and using the internet to reduce their costs.
7. 42% increase in the Hispanic population in US over the last decade
1. Rise in fuel costs and domestic competition.
2. Elevation in security costs due to the risks of hijacking and terrorism.
3. The fact that its rivals have recovered from bankruptcy and recovered back much stronger due to their ability to reduce their costs.
4. The introduction of new aircrafts by the rivals and the fact that this would directly contradict Continentals young and more fuel efficient aircrafts.
5. Entry of international airlines into the domestic services
6. Ongoing pricing
reductions/ the installation of winglets in an attempt to lessen costs. (S7:02): Product Development.
2) The fact that the airline provides customized services in accordance to the destination it’s travelling to/ Being more technologically advanced and using the internet to reduce their costs. (S1:O6): Market Penetration.
3) Backward Integration: S3:S4:O3
1) It has been recorded that continental has poor on-time performance, despite its efforts/ It also had the worst record in over booking and bumping passengers in comparison to other airlines/ Lack of internal training for the employees/ Continental airlines should consider researching the
reductions/ The introduction of new aircrafts by the rivals and the fact that this would directly contradict Continentals young and more fuel efficient aircrafts. (S7:T4): Product Development.
2) Received an array of awards for service quality and overall reputation/ Airline industry as a whole is vulnerable to economic cycles and big swings in bottom-line performance. (S8:T7): Market Penetration.
1) It also had the worst record in over booking and bumping passengers in comparison to other airlines/ Airline industry as a whole is vulnerable to economic cycles and big swings in bottom-line performance/
Rise in fuel costs and domestic competition. (W5:T7:T1): Retrenchment.2) Minimal presence in major
foreign destinations such as
competition of budgeted airlines in the market
7. Airline industry as a whole is vulnerable to economic cycles and big swings in bottom-line performance
international markets, as they face intense competition from the local market / Growing demand for travel at 3.2% growth in 2011
London, Paris, Tokyo/ The fact that its rivals have recovered from bankruptcy and recovered back much stronger due to their ability to reduce their costs.(W8:T3): Horizontal Integration.
SWOT MATRIX ANALYSIS
SO Strategy:
The fact that that Continental’s product portfolio consists mainly of Boeing’s and are the
youngest worldwide coupled with the fact that Continental airlines has introduced the installation
of winglets to cut costs will lead to an overall efficient product development. (s7:02)
The customized service element that Continental provides, in accordance with the destination it’s
travelling to mixed with the fact that technological advancements now make it easier to provide
these customized services would make it easier for Continental to penetrate into the market.
Continental’s efforts to motivate its employees by providing them with efficient incentive
programs, plus the fact that it “Open Skies” policy that was developed to raise connectivity with
Control over distributors and suppliers -3 Resource consumption 3
Total -14 Ease of entry into the market 2
Productivity, capacity, utilization
4
Total 18
Interpretation:
Continental Airline falls on the second quadrant of SPACE matrix, which is aggressive. In
overall the matrix shows that the company has competitive advantage if they adapt aggressive
strategies such as any integration and intensive or diversification.
Boston Co nsulting Group (BCG) Matrix The BCG matrix reveals the company’s market share position in the industry to the market share detained by the largest competitor in the same industry. The matrix displays the companies on a graph of the market growth vs. market share relative to competitors. The BCG Matrix is divided into four types of circumstances, the Stars, Cash Cows, Dogs and Question Marks.
Relative Market ShareContinental sales in 2009=12,586mn
Delta Airlines sales in 2009=28,063mn
The relative market share is 0.45
Industry growth rate= (15.5) % Major Airlines Revenue 2009 in
The following BCG Matrix shows the proportion between relative market share and industry growth rate of Continental Airlines. With a relative market share of 0.45 and a industry growth rate of (15.5) % the position lies in the fourth cell ‘Dogs’ which represents the strategies of liquidity, divesture and retrenchment. The company has very Low relative market share & compete in slow or no market growth with Weak internal & external position.
High Medium Low
1.0 0.50 0.0
Industry Growth Rate%
Relative Market Share
High +20
Medium 0
Low -20
STARS QUESTION MARKS
CASH COWS DOGS
4.0
3.0
2.0
1.0
Internal-External (IE) Matrix
The Internal-External (IE) Matrix is a strategic management contrivance that is used to analyze the strategic position of a business. The IE matrix is supported by the total weighted scores of the IFE matrix on the x-axis and the EFE matrix on the y-axis. The matrix spots an organization into nine cells and the matrix can be divided into three major sections that have dissimilar allusion. The IE matrix is almost similar to BCG matrix and it has two key dimensions including the scores in the x axis and EFE total weighted scores on the y axis. Total IFE weighted score of 2.92 falls in X axis and the Total EFE weighted score of 2.83 fall in the Y axis and both the whereas both the values are slightly above average. According to the IE matrix below, Continental Airlines falls in the fifth cell and so as they should follow the strategy of “hold and maintain”. This strategy mainly focuses on both market penetration and product development.
Strong Average Weak
3.0 to 4.0 2.0 to 2.99 1.0 to 1.99
THE IFE TOTAL WEIGHTED SCORES
THE
EFE
TOTAL
WEIGHTED
SCORE
3.0 2.0 1.0
I II III
IV V VI
VII VIII IX
Grand Strategy MatrixThe GS matrix is one of the popular tools to identify and formulate alternative strategies and companies can be positioned in one of the four quadrants which represent different strategies. The following grand strategy matrix of Continental airlines evaluates competitive position and market growth in the current similar market industry.
Rapid Market Growth
II I
III IV
Slow Market Growth
Interpretation:
According to the Grand Strategy Matrix, the position of Continental Airlines lies in the fourth quadrant which reveals that the company has above the average competitive position among the competitive market and but very slow market growth as the industry growth rate is really below the average. The strategies recommended are related diversification, unrelated diversification and joint ventures.
Weak Competitive Position
Strong Competitive Position
Quantitative Strategy Planning Matrix (QSPM)
ALTERNATIVE STRATEGIES(HI)Merging with United Airlines”
(MD)Developing a strong market in China and Japan
STRENGTHS WEIGHT AS TAS AS TASThe fact that the airline provides customized services in accordance to the destination its travelling to.
0.10
2 0.20 3 0.30The company rose to profitability after being hit by severe losses for four years straight.
0.08
3 0.24 2 0.16It’s young management team that has been supporting it since the mid 90’s.
0.05
2 0.10 1 0.05It’s various incentive programs to keep its staff motivated to aim towards on-time arrivals.
0.07
- - - -The fact that it serves more international markets than any other U.S. aircraft.
0.08
2 0.16 3 0.24Houston hub serves booming energy market; Newark hub serves huge New York market and is a major access point to Europe
0.07
3 0.21 1 0.07
It’s fleet comprises of mainly Boeing’s and is one of the youngest globally. This leads to increased efficiencies and major cost reductions.
0.07
3 0.21 2 0.14
Received an array of awards for service quality and overall reputation.
0.09
2 0.18 3 0.27Increment in gross profits and reductions in overall costs.
0.05
- - - -WEAKNESSES
The fact that its “Go forward” plan does not attend the environmental issues directly.
0.07- - - -
The airline has faced a decrement in its overall AQR scores. 0.03
1 0.03 2 0.06
WEIGHT AS TAS AS TASService quality has also faced a decline.
0.053 0.15 2 0.10
It has been recorded that continental has poor on-time performance, despite its efforts.
0.03
2 0.06 1 0.03It also had the worst record in over booking and bumping passengers in comparison to other airlines.
0.042 0.08 1 0.04
Lack of internal training for the employees
0.03
- - - -Little equity in planes, limiting ability to raise cash through sale/lease-back deals
0.06
2 0.12 1 0.06Minimal presence in major foreign destinations such as London, Paris, Tokyo
0.03
3 0.09 1 0.03Total 1
OPPORTUNITIES
Continental airlines should consider researching the international markets, as they face intense competition from the local market.
0.07
- - - -
The installation of winglets in an attempt to lessen costs.
0.10
- - - -The “EU-US Open Skies” provides Continental with an opportunity to broaden its base in terms of connectivity.
0.09
2 0.18 3 0.27Merger with the United Airlines in October 2010
0.10 4
0.40 2 0.20Growing demand for travel at 3.2% growth in 2011
0.04
4 0.16 3 0.12Being more technologically advanced and using the internet to reduce their costs.
0.08
2 0.16 1 0.08
42% increase in the Hispanic population in US over the last decade
0.03
3 0.09 1 0.03
THREATS WEIGHT AS TAS AS TAS
Rise in fuel costs and domestic competition.
0.09
- - - -Elevation in security costs due to the risks of hijacking and terrorism.
0.08
- - - -The fact that it’s rivals have recovered from bankruptcy and recovered back much stronger due to their ability to reduce their costs.
0.06
2 0.12 3 0.18
The introduction of new aircrafts by the rivals and the fact that this would directly contradict Continentals young and more fuel efficient aircrafts.
0.07
2 0.14 3 0.21
Entry of international airlines into the domestic services
0.08
3 0.24 1 0.08Ongoing pricing competition of budgeted airlines in the market
0.08
2 0.16 1 0.08Airline industry as a whole is vulnerable to economic cycles and big swings in bottom-line performance
0.03
- - - -TOTAL 1
3.39 2.8
Advantages and Disadvantages of Strategies
Merging with United Airlines:
An advantage of this merger would be the fact that mergers do not require immediate cash. Also,
a merger may allow the shareholders of smaller enterprises to own a certain share of a much
larger entity, thus increasing their overall net worth. In addition, a merger may also allow
Continental airlines to avoid many of the costly and time constraining elements associated with
asset purchases. Disadvantages of the possible Merge would’ve been those of diseconomies of
scale, which generally occur when a business becomes too large for the owners to handle, thus
giving rise to higher unit costs. Also, the clash of culture, such as those of the organization, the
individuals and management as a whole, can occur. This may in turn reduce the overall
effectiveness of the organization. Lastly, a contradiction of objectives may occur which may lead
the business to face severe consequences.
Developing a strong market in Japan and China:
The obvious advantages of this, for Continental Airlines, would be that since Japan and China
have faced an increment in their rate of tourism, developing a strong market base in these regions
would enable Continental Airlines to increase their market share, gain further global recognition,
increase their productivity and profitability and thus face an overall rise in their efficiency.
However, certain problem may also arise in targeting these markets. Researching and developing
strategies that fit these regions may take time and money, and thus, the problem of opportunity
cost may arise. Also, a lot of resources may be wasted if policies do not match the expected
outcomes; this may be completely disadvantageous for the business and may also lead it to
bankruptcy.
Strategy recommendation
From the careful analysis of the strengths and weaknesses of both these strategies, it can be seen
that merging with United Airlines was a better option for Continental Airlines. This was mainly
because through this merger, Continental Airlines faced higher economies of scale, economies of
scope and an increment in their overall market power. Lastly, they may also have also incurred a
reduction in their long term costs as costs were distributed and tasks were also spread across their
much greater operations base.
Long term objectives
The Long term objectives of the company is to Increase operating revenue by 20 % by 2012
using Horizontal Integration strategy (Merging) in this scenario and the company expects a
significant growth in the future operation by extending its wide network of global and domestic
links. Strong marketing activities will be done in order to support the long term objective and the
goal of the company; the financial statements are expected to be beginning by the end of 2010
and the objective is believed to be achieved in two years which is 2012. The following chart will
give a glimpse about the annual objectives of the company’s different departments.
Objectives and Policies
Long term company objectives
Increase operating revenue by 20 % by 2012 using Horizontal Integration strategy( Meging )
R&D annual objective
Develope new technology to reduce the fuel consumption
Invent new ways of Online
reservation and flight tracking
system
Marketing annual
objectivesPrioritise advertising activites for merging and developing campagne
programs about the new routes
MIS annual objectivesCreate a
consolidated customer data base of both
merged airlines
Finance annual objectives
Forcast the future risks involved
inthe horizontal integration process and develop risk management
Personnel annual
objectivesImplement staff training and development
program for new recruitments and offer refreshment training every
quarter
PoliciesResearch and Development:
• Develope new technology to reduce the fuel consumption
The R&D Team should develop a model of technology practice by the end of this year in
which the company should be able to implement in the future.
• Invent new ways of Online reservation and flight tracking system
The demand for online reservation and mobile flight tracking system is increasing and by
the period of 5 months, company should be able to deliver these communicative systems
in the responsive market.
Marketing:
• Prioritize advertising activities for merging and developing campaign programs for
the new routes
Marketing team has to develop new marketing plan within 3 months about the new routes
and by the year end a new way of online marketing system should be added onto the
company website.
Management Information Systems:
• Create a consolidated customer data base of both merged airlines
Develop a combined data base of existing customers and upload into the server system by
end of October
Finance:
• Forecast the future risks involved in the horizontal integration process and develop
risk management
Finance Management team should assess the various risks associated with the merging
and should develop a risk management program within 3 weeks of time starting by the
beginning of March
Personnel:
• Implement staff training and development program for new recruitments and offer
refreshment training every quarter
Human resources team should develop a new training and welcoming program for all the
new recruited staff before the recruitment process starts.
Develop and offer new refreshment training for all the employees in quarterly basis.
Resource Allocation
The following table will shed some lights on the resources which will be allocated before
the implication of the recommended strategy. The financial resources will be required for
airport charges, government taxes, legislation fees, marketing activities and operational
expenses. The HR resources such as new recruitment and training programs will be
required as well. Physical and technological resources are the basic operational resources
required for the strategy to be implemented successfully.
PhysicalAircraftsMaintenance & Service centresCorporate offices & BuildingsEmployee housingsEquipments & other assets
HumanRecruitment and training of employees
TechnologicalR&D development equipmentsOutsourcing of technology
Income Statement after Implementation Dec 09(mn) Dec 11(mn)
Revenue 12,586.0 13,959.0
Cost of Goods Sold 5,779.0 7,745.0Gross Profit 6,807.0 6,214.0Gross Profit Margin 54.1% 44.5%SG&A Expense 6,314.0 7232.0Depreciation & Amortization 494.0 390.0Operating Income (146.0) (628.0)Operating Margin -1.2%Non operating Income 95.0 132.0Non operating Expenses (388.0) 37.0Income Before Taxes (439.0) (214.0)Income Taxes (157.0) (97.0)Net Income After Taxes (282.0) 23.0Continuing Operations (282.0) 23.0Discontinued Operations -- -Total Operations (282.0) 23.0Total Net Income (282.0) 23.0Net Profit Margin -2.2% 1.8
Recommendations:The overall strategic analysis of Continental airlines reveals that current recommendation for the horizontal integration strategy which in merging in this case would boost the sales over the years and the company can have a significant control over the entire air transport operations in the domestic airline market of United States as well as in the international airline operation as well. The expected growth of company will definitely become a threat for many of the domestic air carriers in the United States and it will increase the overall market share of the company in the coming years.
